Hélène Girard has been retired for six years. Since she was an accountant by profession, saving was always very important to her. “I’ve always been a squirrel. I always put in the maximum RRSP that I could put in each year, even if I had to cut elsewhere to get there. » Even though she has good financial literacy, she worked with a financial planner to plan her retirement, she consults her financial advisor regularly and she makes a budget every month so that she can adjust as needed. Despite everything, some concerns remain: “Will I have enough left until the end? Will the economy be on my side or are we headed for disaster? »
There are a multitude of things to consider when retiring: do you have an employer pension? How much pension will you have from the Quebec Pension Plan (QPP)? How much Old Age Security (OAS) pension will you receive? Will you be eligible for the Guaranteed Income Supplement (GIS)? Depending on your needs, when and how much will you withdraw from your RRSP, TFSA and other investments? Will you have an additional source of income? “All of this must be looked at in its entirety,” explains Benoît Gaumont, financial planner, tax specialist, president of Gaumont Groupe Conseil.
Minimize the tax bill
“Taxation will certainly be a very, very important element to ensure that, overall, the net, what we use to pay for our expenses, that we have as much left over as possible. We will achieve this by paying as little tax as possible,” says Mr. Gaumont.
If you are a couple, to minimize the overall tax bill, start by withdrawing the RRSPs of the spouse with the lower tax rate. “The first tax bracket, up to $15,000, is 0%. Where we take it will be important in the hands of those who already have taxable income or between those who have less or who do not have any,” specifies the planner and tax specialist.
If you’re a couple, the worst thing you can do is do things separately.
Benoît Gaumont, financial planner, tax specialist, president of Gaumont Groupe Conseil
If you are not in a relationship, you can also withdraw $15,000 at 0% and, if you don’t need it, place it in a TFSA. After withdrawing $15,000, the next $2,183 is taxed at 12.5%, which isn’t very high. “That means that someone who has no taxable income can take out around $17,000 from an RRSP without paying much in taxes,” concludes the planner and tax expert.
This strategy, however, carries a risk, that of affecting your amount of OAS and GIS. “When you reach retirement, your OAS and SRG depend on the income earned. It depends on how much you earn. When you withdraw from your RRSP, it counts in your earned income, but when you withdraw from your TFSA, it does not count in your earned income. Even if you just think about the marginal tax rate, it’s not enough because if you’re exactly in the region where you’re eligible for OAS, every additional RRSP withdrawal you make cuts you 15%. on the OAS and the SRG,” mentions Philippe d’Astous, associate professor in the finance department of HEC Montréal.
RRIF and life annuity
On December 31 of the year you turn 71, you will be required to convert your RRSPs. You then have two options: convert them into registered retirement income funds (RRIF) or take out a life annuity. The RRIF is subject to market risks and is flexible while the life annuity is inflexible, but ensures you have a fixed amount every month until your death. “Sometimes, people can make combinations, so one end of the RRSP goes into a RRIF and the other end goes into a life annuity. In this way, we have the best of both worlds: a bit of predictability and a bit of flexibility,” emphasizes Benoît Gaumont.
Details that change everything
Withdraw from a RRIF rather than an RRSP to obtain the tax credit for pension income and avoid bank fees, make RRSP withdrawals rather than applying for the QPP pension at age 65… several other strategies can allow you to take advantage of your retirement savings, but you still need to know them. Benoît Gaumont and Philippe d’Astous agree that an advisor or financial planner is your best ally. “You shouldn’t make the mistake of thinking that you can do everything yourself if you don’t have the skills to do it. It’s important,” emphasizes the associate professor.